Tag Archives: labor shortage

U.S. manufacturing growth cooling; bottlenecks starting to abate

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity grew at a slower pace in July for the second straight month as raw material shortages persisted, though there are signs of some easing in supply-chain bottlenecks.

The survey from the Institute for Supply Management (ISM) on Monday showed a measure of prices paid by manufactures fell by the most in 16 months, while the supplier deliveries index retreated further from a 47-year high touched in May.

Timothy Fiore, chair of ISM’s manufacturing business survey committee, noted that “supply and demand dynamics appear to be moving closer to equilibrium for the first time in many months.” Part of that could be because spending is rotating back to services from goods.

“Manufacturing is slowing from unsustainable boom to sustainable strength,” said Chris Low, chief economist at FHN Financial in New York.

“Moderation in supplier deliveries and prices paid indicate bottlenecks are alleviating, but both remain high enough to indicate supply-side problems persist. Still, from a markets and policy perspective, progress is important.”

The ISM’s index of national factory activity fell to 59.5 last month, the lowest reading since January, from 60.6 in June. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index would be little changed at 60.9.

Seventeen out of 18 manufacturing industries reported growth in July, including machinery as well as computer and electronic products. Only textile mills reported a decline.

The ISM survey’s measure of prices paid by manufacturers fell to a reading of 85.7 last month from a record 92.1 in June, reflecting an easing in commodity prices. The drop – the largest pullback in the index since March 2020 – supports Federal Reserve Chair Jerome Powell’s contention that inflation will moderate as supply constraints abate.

The survey’s measure of supplier deliveries fell to 72.5 from a reading of 75.1 in June. The index vaulted to 78.8 in May, which was the highest reading since April 1974. A reading above 50 indicates slower deliveries.

Demand shifted to goods from services during the COVID-19 pandemic as millions of Americans were cooped up at home, straining the supply chain. Roughly half of the population has been fully vaccinated against the coronavirus, allowing people to travel, frequent restaurants, visit casinos and attend sporting events among services-related activities that were curbed early in the pandemic.

Government data last week showed spending on services accelerated sharply in the second quarter, helping to lift the level of gross domestic product above its peak in the fourth quarter of 2019.

U.S. stocks were trading higher, with the S&P 500 index near a record high as the U.S. Congress pushed ahead with a $1 trillion infrastructure bill.

The dollar fell against a basket of currencies. U.S. Treasury prices rose.

LEAN INVENTORIES

Still, anecdotes in the ISM survey suggested the supply chain was still a long way from normalizing. Machinery manufacturers said they are “having to place orders months ahead of time just to get a place in line.”

In the computer and electronics industry, manufacturers reported that “purchases continue to have long lead times due to shortages of raw materials.”

The scarcity of inputs has been well documented in the automobile industry, where a global semiconductor shortage has forced some car makers to idle assembly plants to manage their chips supply.

The ISM survey’s forward-looking new orders sub-index fell for a second straight month. But with inventories at factories very lean and business warehouses almost empty, the moderation in new orders growth is likely to reverse or remain minimal.

Businesses depleted inventories at a rapid clip in the second quarter. Stocks at retailers are well below normal levels. Economists at Goldman Sachs expect retail and auto inventories will return to normal levels in mid-2022.

Factories also hired more workers in July. A measure of factory employment rebounded after contracting modestly in June for the first time since November, though manufacturers continued to complain about the scarcity of workers.

Still, the rebound bodes well for July’s employment report, due to be released on Friday. According to a Reuters survey of economists, nonfarm payrolls likely increased by 880,000 jobs last month after rising by 850,000 in June.

The economy is facing a shortage of workers, with a record 9.2 million job openings. About 9.5 million people are officially unemployed.

Lack of affordable child care and fears of contracting the coronavirus have been blamed for keeping workers, mostly women, at home. There have also been pandemic-related retirements and career changes. Republicans and business groups have blamed enhanced unemployment benefits, including a $300 weekly payment from the federal government, for the labor crunch.

While more than 20 states led by Republican governors have ended these federal benefits before they were scheduled to run out in early September, there has been little evidence that the terminations boosted hiring.

The labor shortage is expected to ease in the fall when schools reopen for in-person learning, but a resurgence in new COVID-19 cases, driven by the Delta variant of the coronavirus, could make some people reluctant to return to the labor force.

(Reporting by Lucia Mutikani; Editing by Dan Burns, Nick Zieminski and Paul Simao)

Stung by pandemic and JBS cyberattack, U.S. ranchers build new beef plants

By Tom Polansek

CHICAGO (Reuters) – U.S. cattle ranchers and investors are sinking hundreds of millions of dollars into new beef plants after temporary closures of massive slaughterhouses at the start of the COVID-19 pandemic left farmers with nowhere to send animals destined to be turned into meat.

A cyberattack against the U.S. unit of Brazilian meatpacking giant JBS SA that idled nearly a quarter of America’s beef production earlier this month again highlighted vulnerabilities in the country’s meat supply chain and caused more headaches for farmers.

Ranchers, as well as the U.S. Agriculture Department (USDA), say the sector is too consolidated and therefore reliant on a handful of large processors and their industrial meatpacking plants.

Four industry behemoths – JBS USA, Tyson Foods Inc, Cargill Inc and National Beef Packing Company – slaughter 85% of grain-fattened cattle carved into steaks, ribs and roasts for consumers.

Smaller startup meat plants are aiming to provide local ranchers with more places to slaughter cattle, particularly those raised to produce higher-quality beef. They say adding plants can ensure some meat production continues if large facilities close.

When large meat plants close, meat supplies tighten while ranchers get stuck with cattle that would otherwise have been slaughtered. That means the price of cattle generally falls, while the price of meat in supermarkets rises.

Extended shutdowns of some of the biggest U.S. slaughterhouses due to COVID-19 outbreaks hobbled meat production in spring 2020, leading to limits on consumers’ purchases at grocery stores and a decline in frozen inventories that processors have yet to replenish.

Rusty Kemp saw the need for more processing capacity after a 2019 fire at a Tyson Foods plant in Holcomb, Kansas, left meat buyers scrambling for supplies and cattle producers with nowhere to sell their cattle. Then, the pandemic and ransomware attack on JBS hit.

Kemp is now planning to break ground on a $300 million beef plant in Nebraska this fall.

“We thought the Holcomb fire was an absolute train wreck and then COVID came along and Holcomb didn’t seem that bad,” he said.

Kemp’s plant, named Sustainable Beef, will kill 1,500 cattle a day and use blockchain technology so consumers can track a piece of meat all the way back to the ranch, he said.

Sustainable Beef is co-owned by cattle producers who will provide animals for slaughter to the plant, instead of to major packers, Kemp said. He hired former executives of one of the biggest processors, Cargill, as consultants because of their expertise.

But Kemp said he is not trying to pick a fight with the four major processors and that bigger plants are still needed to produce large volumes of meat.

“We absolutely need more capacity and more players,” Kemp said.

MORE ROOM TO SLAUGHTER

Nationwide, at least five new processing facilities of varying sizes have opened or are planned following supply shocks early in the pandemic. Combined with expansions at existing plants, including one owned by JBS, daily U.S. slaughter capacity is set to increase by about 5%, according to a Reuters calculation and data from industry group the North American Meat Institute.

Market conditions are favorable for new entrants. Cattle supplies are ample, while beef prices and profit margins for packers have soared due to strong exports and demand from U.S. consumers.

In Butler, Missouri, Todd Hertzog and his family opened Hertzog Meat Company this month after considering the project for five years.

Though the $3.75 million plant is only slaughtering about 20 cattle a day, it serves nearby ranchers who want to produce higher-quality beef, said Hertzog, who manages the operation.

“The pandemic opened our eyes to the needs of local producers,” he said.

Production disruptions during the pandemic pushed Cliff Welch to begin construction on a meat processing plant near Central City, Kentucky, at a price tag of more than $1.2 million. The cyberattack on JBS then reinforced Welch’s decision to build the facility, slated to open in late 2021, he said.

Welch aims to slaughter 75 cattle a week to start, with the capability to eventually kill 300 head a week. He said he will produce custom cuts of meat using “old-style butchery” and plans to sell it locally.

“I’m starting from ground zero,” Welch said. “It’s a big undertaking.”

Welch said he received a $250,000 grant from Kentucky for the project.

The U.S. Agriculture Department has pledged to support increased processing as part of a $4 billion initiative to strengthen the country’s food system.

“The hope would be that by spreading out, by creating diversity in size and diversity of ownership and diversity of operations, we create greater resilience,” USDA Secretary Tom Vilsack told reporters after the JBS attack.

Missouri last year paid about $17 million in grants to meat processors with fewer than 200 employees that wanted to expand or build new facilities, state agriculture director Chris Chinn said. The payments doubled the amount of red meat inspected by the state in a program sparked by the pandemic, she said.

“It added stability to our local communities and our rural areas,” Chinn said. “They didn’t have to depend on one local source to get their food.”

SMALLER PLANTS, SAME PROBLEMS

Small facilities are finding they face some of the same challenges as larger outfits, notably a labor shortage, without the benefit of a big corporation behind them.

After opening in March, Missouri Prime Beef Packers struggled to find workers for a plant in Pleasant Hope, Missouri, that now kills about 200 cattle a day, despite putting ads in newspapers and on radio, said Dallen Davies, director of company culture.

The facility is slaughtering cattle raised under special guidelines, such as being grass-fed or certified for humane handling, as a way to add value for ranchers and provide a better product for consumers, Davies said.

Plants need to differentiate themselves because they cannot compete with industry titans on volume or on low prices achieved with mass production lines.

Former President Donald Trump last year said he urged the Justice Department to look into allegations the meatpacking industry broke antitrust law because the price that slaughterhouses pay farmers for animals dropped even as meat prices climbed. U.S. governors and lawmakers are pushing the department to keep probing.

Those involved in slaughterhouse expansion say they still need to do something to give ranchers more options in the meantime.

“We really don’t want to wait around and see if the government is going to solve this problem,” Kemp said. “We decided to take matters into our own hands and do this.”

(Reporting by Tom Polansek in Chicago; Editing by Caroline Stauffer and Matthew Lewis)

U.S. Chamber calls for end to $300-a-week jobless aid to ease labor shortage

WASHINGTON (Reuters) – The U.S. Chamber of Commerce on Friday said the federal government should end the $300 weekly supplemental unemployment benefit in President Joe Biden’s $1.9 trillion COVID-19 aid package to ease a labor shortage that limited hiring in April.

“The disappointing jobs report makes it clear that paying people not to work is dampening what should be a stronger jobs market,” the Chamber’s chief policy officer Neil Bradley said in a statement, adding that unfilled positions threaten to slow economic recovery.

“Based on the Chamber’s analysis, the $300 benefit results in approximately one in four recipients taking home more in unemployment than they earned working,” Bradley said.

(Reporting by David Lawder)